Record production in recent years has allowed the United States to become the world’s leading producer of petroleum and natural gas.[1] With the dramatic rise in production has come lowered commodity prices and an increased necessity for oil and gas exploration and production companies, or E&Ps, to manage costs. As forward-looking E&Ps consider innovative means of reducing expenses, blockchain technology presents an exciting opportunity to improve margins.

One such opportunity lies in the ability to cut E&Ps’ numerous transactional costs. Blockchain technology will permit E&Ps, their midstream partners, and landowners alike to manage transactions transparently and autonomously through smart contracts whose conditions are validated throughout the supply chain.

The potential applications of smart contracts to oil and gas transactions are obvious, notably those transactions involving: (1) upstream companies with their midstream partners, as well as midstream with downstream, (2) joint venture agreements, (3) production sharing, (4) division order calculations, and (5) landowner royalties, to name just a few. Through the use of blockchain smart contracts, E&Ps will know who is owed what, where, and when, all in real time with the data stored securely in a decentralized ledger.

Furthermore, blockchain technology ensures secure transactions between these smart contract partners without the need for third party verification. In so doing, energy industry companies are able to cut out third parties, thereby increasing efficiency and reducing costs.
[1] U.S. Energy Information Administration,United States remains world’s top producer of petroleum and natural gas hydrocarbons, May 21, 2018, https://www.eia.gov/todayinenergy/detail.php?id=36292.